The Monthly Sales Tax Cycle

Learn about the monthly or yearly sales tax cycle for businesses and how these work together for compliance (or non-compliance).


Hi, welcome to Will's Whiteboard. I'm Will.

So what can you do in the space of a month? Let's see. I can do this in a month. But you know what? That was not very fun. Now I'll tell you what else is not fun: sales tax compliance.

There's something called the sales tax cycle that you know all too well if you're in sales tax compliance. And this is what happens on a monthly, quarterly, or yearly basis, depending on how often you have to file. Now, you might agree, this is not much fun. But it's important. And we're going to talk about why it's important.

In our last video, we talked about sales tax compliance at the sub-second level. Everything that needs to happen at the speed of a transaction. When a purchase is made, there are all kinds of things that go into making the correct tax determination. Now, purchases are made on a daily basis, probably, for your business. How many purchases that is, will vary drastically, depending on what business you're in.

So sub-second compliance is feeding your monthly, or quarterly compliance cycle. Now as I mentioned, this is the part that's not too fun for many people. It's like Groundhog Day. Let's say, you're on a monthly filing schedule. Maybe you've got to file towards the end of the month.

This happens time, after time, after time. And you've got to manage your sales tax data. You've got to use the right forms. You've got to file on time. You've got to remit on time. You've got to manage exemption certificates. There's a lot that goes into maintaining monthly compliance.

Now in turn, your monthly compliance feeds into sales tax compliance on a yearly level. Now here's where the rubber really meets the road. When an auditor comes to your business, and you get audited for sales and use tax, they're going to ask for a selection of sales tax records. Maybe it's a few months, within a year, that was several years ago.

In order for those records to be accurate and up-to-date, you have to have had your sales tax compliance right on a monthly level. Exemption certificates, filing remittance, staying updated with rules and rates, different filing schedules, and formats. But this also depends on your sales tax compliance at a sub-second level. Getting sourcing right, product tax ability, all of those different tax determinations, that go into your sales tax compliance on a daily basis.

So as you can see, each piece feeds the next, and it becomes exponentially complex. So that by the time the auditor is there, there is so much. You know, this is the tip of the iceberg, and there's so much that lies beneath the surface.

If you're doing this manually, it's an extremely risky proposition because you could be getting something wrong at any step, at any time. But with an automated solution, like Avalara's AvaTax. it's technology that's performing these functions for you, instead of humans - all the way from the tax determination, to the filing, and exemption certificate management, to the reporting, where you can hand the auditor the documents they ask for. And you can feel more secure. And that you have less risk, because you've automated your sales tax compliance process.

Thanks very much. I'll see you next time.